BAILING OUT THE BIG 3



This image is very telling.  The logo for General Motors is fractured.  Interestingly enough we can view this in several ways.  We can see this as the destruction of an American Icon, or the fracturing of said Icon into two halves, or maybe even more.  Could GM become several smaller more agile companies more adjusted to the economic dynamics of the 21st Century?  Or, is it destined for doom, a massive king from a bygone era who's time has finally come? 

There is a question on all our minds.  Should we be about this?  Is it our role?  First, should we regular laymen get involved and try to understand?  Second, is it the role of the American people as taxpayers, through our government, to bail out failing companies no matter the size or implied importance to the economy?  Should we be about this?

The US Congress met during the Lame Duck session to try and put together a bail-out package for the Big 3.  It stalled.  What was it like to be there?  The three men below, captains of industry, CEOs of our nation's automotive industry, were set before congressional committee, and grilled like steak.  It wasn't pretty.  However, as we are wont to do, we laughed at the spectacle.  And believe me when I say it was a spectacle ...  Saturday Night Live made a skit out of it.




Alan Mulally of Ford, Robert Nardelli of Chrysler, and Rick Wagoner of GM.  These men sat before Congress, hat in hand, begging to be saved, and came away empty handed.  Their stomachs roiled.  Their brains were overloaded, stressed as they have been living their lives in a pressure cooker for the last few corporate quarters.  They are plagued with nightmares.  Their nights consists of Union workers, smoke breaks, high wages, decisions based on greed, big trucks, Hummers, gas guzzling big-wheeled monstrosities, with huge mouths in the grill that gobble up their hope, before feasting on their flesh.  They wake up sweating.  They dream the dreams of the doomed.  

Are they doomed?  Where do they stand?  Near the precipice.  Will they fall in?  Yes, without support.  This brings us back to the question.  Should we, the American taxpayer, save them from their surreal nightmare, this nightmare that is rapidly invading their reality?   

After careful cognition and considered thought, I have decided in my common man's wisdom that we should save them.  However, I am loathe to do so.  Still, I find it a necessary evil that runs contrary to all I believe and hold dear about capitalism.  These companies deserve to fail.  They should fail.  Still, I find I cannot agree to allow them to do so.  Allow me a moment to explain why.

3FE

I applied a very simple 3FE analysis to the situation and not only arrived at a clearer understanding, but laid out a rudimentary bailout strategy for the Big 3 that includes an aggressive exit strategy for the American taxpayer.


The man you see above is Warren Buffett.  He is far superior to me in intellect by several orders of magnitude.  Still, just because he would say a thing, or do a thing, does not mean I should, or would do a thing.  Even after observing his actions, and considering his responses, I would take the time to STOP & THINK, and consider whether what he's doing is right for me, my family, my community, or my nation from my perspective.  I considered what Warren said.  It was part of the Find portion of my 3FE activity.


Find:
The Big 3 are headed towards bankruptcy.
The Big 3 are the victims of shortsightedness. 
The Big 3 have started innovating by building cars based on energy alternatives.
The Big 3 have considerable overhead employee costs due to Unions.
The Big 3 are tied almost inextricably to the rest of the American economy.
The Big 3 are at the core of American industry.
Supplier companies feed the Big 3.
Marketing Firms advertise for the Big 3.
Local restaurants and retailers support the Big 3 and their supplier companies.
Doctors treat the Big 3 employees.
Lawyers litigate for the Big 3.
The Big 3 generate loans.
The Big 3 fund charitable organizations.
THE BIG 3 and the OIL COMPANIES are tied together in a symbiotic relationship.

That's a lot of Finding for a rudimentary analysis, and believe me when I say I found a lot more.  Still, these were some of the more pertinent facts surrounding this issue.  The last fact was not so much a revelation as a bright path to a solution.  It allowed me to step back as I focused.  What was required was not an isolation of single facts, but identifying and understanding the critical ties between all those facts.  Understanding this fact, that the ties are strong, not tenuous, more than an other single piece of information moved me to support a bailout. 

Here is my Focus.

It is possible for maybe two of the BIG 3 to survive Bankruptcy.  Let's face it, no one is going to want to buy from a bankrupt company.  How can a person be certain the company would still be around in a year or two to support this investment that's worth thousands of dollars.  Still, a smart, aggressive company made nimble by economic hardship might be able to see its way back to recovery.  Say Ford manages to survive.  That leaves America with one major car company.  Is that a bad thing?  On the surface, I say no.  My thought would be that new companies would rise from the ashes and new innovators would take America into a greener, energy efficient future.  When you say it like that, it's not all bad.  So what if some people lose their jobs.  They just need to get re-educated and find work elsewhere.  My friends, therein lies the problem.  Work where?

WHERE TO WORK ... FOR WHOM? 

In a more normal economic climate I believe we could readily stomach the destruction of the Big 3.  Tesla Motors would become one of the new Big 3, despite the challenges they're facing in truly understanding what's required to bring something as major as an automobile to market.  By the way, can Tesla currently get the money it needs in this harsh economic climate?  How are they weathering the credit freeze?  Can their rich backers deal with their dream companies hefty cash burn rate?  Are the making it? 

Hmm, I would gather a Detroit line worker can't go work for them.  Employee and company don't mix, no union, different technology, and an inhospitable economic environment that does not allow for a Tesla to play savior.  Nope, not here, not in 2008-2009. 

I focus on the big picture and I see everything tied together.  The unemployment rate is increasing.  People are losing their jobs.  If the Big 3 do collapse, we are adding millions of employees to the ranks of the unemployed.  They will become the government's burden.  They will become our burden.  What do we do with all the unemployed line workers?  And that's just the beginning.  What do we do with the suppliers.  What do we do with the restaurant owners, the shop owners, the doctors, even the lawyers?  What do we do with the millions of people who directly or indirectly owe their living to the American automobile industry?

More importantly, what do we do when all these millions of unemployed people stop buying from other areas of the economy?  People, that was the end of my focus.  I didn't put it on the same scale as an AIG, but I felt the implications could be just as disastrous for the American economy.  We simply cannot stomach such a failure at this delicate juncture.  We must build a plan that is both fundamental and critical, that leverages the most effective ideas we have to offer, and protects the American taxpayer at the same time.  We need a plan that over time denies those responsible of perks and pats on the back, but at the same time allows the employed to subsist, and even thrive.  Finally, the American taxpayer needs a plan that gets us out of the business of building cars, removing whatever bureaucracy has grown up around helping run the Big 3, and putting the rewards of this investment into an American surplus, and eventually back in the hands of the people.  How might we do that?  What would the plan look like?

establishing a Fundamental plan

Again, I'm not all that smart, but there are some things I think I would do as part of a government sponsored bailout.  First off, let's not call it a bailout.  Let's call it a restructuring and investment plan.  How would we move it forward?  We would have to move it aggressively, but in measured phases, taking care to ask as many critical questions as necessary without losing the sense of urgency.  My plan goes something like this.

1) Make available the funds necessary to keep the Big 3 solvent.  We don't have time to do a secondary lengthy assessment.  Go with the figure they've already established.

2) Limit all executive compensation to a mandatory level remaining competitive within the industry.

3) Eliminate all bonuses.  If they want to leave, that's fine.  Write it up so that new management can come in with lucrative inducements based solely on meeting or exceeding expectations in regard to corporate performance.

4) Maintain the current workforce for 1 year, and at that time make the corporation's continued existence as a whole entity dependent upon renegotiation with the UAW.  Pensions can be secured, but leave the past in the past.  UAW workers must be competitive with workers in other plants like BMW, Toyota and Kia.  If not, the government reserves the right to phase current workers out and replace them.  The Unions need to be made to understand that their value is recognized, but they should not hold their own company hostage, and they will not be allowed to hold the American taxpayer hostage as the shareholder of last resort.

5) Funds for the Big 3 will include partial ownership in each company by the Taxpayers of the United States (Let's not say Federal Government).  Ownership percentage will be based on the amount of the loan for each company.

6) Strict guidelines for operations should be established with performance metrics in place for each quarter.  Metrics will be established with given ranges to account for adverse economic conditions. 

7) Corporate directives will be established that make the transition from carbon based engines to green alternative engines a non-negotiable corporate policy.  Each quarter a substantial amount of funds will be directed towards this effort. 

8) Establish a Keiretsu corporate structure with the major Oil companies.  Big Oil and the Big 3 are symbiotic entities.  The American Taxpayer should insist that Big Oil enter into a purchase agreement with the American Taxpayer and help fund this Big 3 Investment plan.  Look up Keiretsu to understand what I'm really advocating.  We don't have to go to the extreme, but Big Oil can help shoulder some of the burden.  And, they should do it now, before some of that extra money is burned off.

9) Ensure that the bureaucracy established to support this investment plan is dissolved once the Big 3 are once again profitable.  This should be a law, ensuring the government does not continue to meddle in private enterprise any more than is necessary. 

10) Ensure by law that once the Big 3 are profitable, the American Taxpayer sells its stake in the Big 3, either back to the Big 3 or to some other investor entity.  Ensure by law that the revenue from this sale pay off the loan, and any remaining profit go into a surplus or is distributed back to the American Taxpayer. 

In my opinion, If we do this, the Big 3 can survive.  Not only will they survive, they will thrive, and once again become true engines of American innovation.




There, that's my plan in a nutshell.  I don't have the answers.  You don't have to agree.  This is a simple plan from a simple mind for an incredibly complicated problem.  However, it's only made complicated because of human emotion, want, and necessity.  Ask the important questions.  Stop and think.  Do what's right and necessary, even it if hurts.  Then, reap what we sow.  And maybe it will be a good harvest.   Just the thoughts of one critical thinker.